Important Aspects of Expat Taxes and Cross Border Taxation

Jul 27, 18 Important Aspects of Expat Taxes and Cross Border Taxation

When it comes to tax for expats, things can get quite complicated quite quickly. That is why so many people get help from the experts. But if you are living, working, or if you have significant business outside of the United States, there are some things you need to understand about expat and cross-border taxation. Here are a few things to keep in mind.

1. File on Time

Just like all other kinds of taxes, there are due dates for getting your taxes in to the Internal Revenue Service. Tax for expats is due on a different date, however: June 15 instead of April 15. Failure to submit your taxes on time often comes with fees and interest, and there can be other issues that arise as well. Always plan to have your taxes in on time or slightly early, not just for peace of mind but also to ensure that you don’t incur any unwanted fines or attention.

Be aware, however, that while your taxes may be due on June 15 instead of April 15, you may be required to submit forms before then, including your FBAR. You can apply for extensions so that you can file everything at once, but it is important that, when you file tax for expats, you strictly follow the deadlines.

2. Use the Foreign Earned Income Exclusion

The Foreign Earned Income Exclusion is a program that lets you deduct a certain amount of your income from consideration for American taxes. For 2017, the amount was quite significant at $102,100. By using this program, you may end up not paying any tax at all, depending on your income, making it a key program when it comes to tax for expats.

You will need to pass one of two residency tests to use the Foreign Earned Income Exclusion program: either a Bona Fide Residency Test or a Physical Residency Test. The bona fide test means that you lived in a foreign nation uninterrupted for the entirety of the tax year, vacations excepted. The physical test lets you be in any number of foreign countries for a 330-day period, but they have to be full, 24-hour days. The benefit of the physical test is that you can choose the 12-month period rather than strictly sticking to the tax year. Many people who work abroad and have to file tax for expats choose the latter because of its convenience and lesser restrictions.

3. File Your FBARs

The Report of Foreign Bank and Financial Accounts, or FBAR, is a required form that must be filled out when you file your tax for expats if you had any financial accounts with a total balance of over $10,000 at any point during the year. The accounts must be outside of the United States, and failure to comply can result in serious fines or legal action. FBARs are for every American citizen, regardless of their age or circumstances.

4. Cross Border Taxation Involves More than Canada and the US

While many people enjoy the benefits of the relationship between Canada and the United States, some who work in both countries forget that all of their foreign income needs to be reported. It may sound strange, but Canada still counts as a foreign country, and as such, they still need to report that income and any related taxes via tax for expats.

5. Pay Attention to Your Residency

Most people who file tax for expats understand the right paperwork to use, but there are small differences in certain forms that can result in mistakes. Even tax professionals with little experience in dealing with foreign incomes and tax can make these mistakes, which sometimes leads to unintentional tax evasion. The most common mistake boils down to residency, especially when discussing cross border taxation. Always ensure that your forms match your living and working situation to ensure you are compliant and, in some cases, not paying more than you owe.

When you live, work, or earn income outside of the United States, your taxes can become quite complicated and are subject to completely different rules. This is why so many people who must file tax for expats choose to work with an experienced accounting firm that can help them file properly and on time. If you work abroad or have significant business outside of the United States, then be sure to contact a professional accounting firm to help with your taxes. They can help you stay compliant, take advantage of all the programs available, and help you avoid any unwanted fees, fines, or interest.